Energen Raises Compliance Concerns under IBC Guidelines

Bidders many but deviations even more. That’s the issue raised by Coastal in their submissions. While they see merit in the process the Banks and the Business believe that better solutions exist

10th April, 2024, Delhi :

In a significant development unfolding within the National Company Law Tribunal (NCLT), attention has shifted towards Coastal Energen, a notable player in the Power Sector, having commenced operations in 2006 and successfully commissioned a 1,200 MW Independent Power Plant (IPP) in Tuticorin in 2014. Recent proceedings have brought to light contentious issues surrounding the Expression of Interest (EOI) process and the subsequent Letter of Intent (LOI) issued to the Dickey Alternative Investments Trust (DAIT) – Adani Power Consortium.The company was dragged into the NCLT by the State Bank of India in February 2022 following defaults on a loan of Rs. 6,296 crore, which had been provided by a consortium of 13 banks, including the SBI.

The company’s debt surged from Rs. 3,323 crore due to various factors such as a 48-month delay in bank funding amounting to Rs. 2,600 crore, retrospective taxes of Rs. 470 crore, and scope increase costs of Rs. 400 crore.While maintaining engagement with its existing promoters, Mutiara Energy Holding and Precious Energy Holdings, who have collectively injected over Rs. 1,259 crore in equity, the Committee of Creditors (COC) initiated an EOI process through the Corporate Insolvency Resolution Process (CIRP) on 10th February 2023. Initial interest was expressed by Jindal Steel Power Limited (JSPL), Sherisha Technologies Pvt Ltd, and Dickey Alternative Investments Trust (DAIT).

Adani Power Limited (APL) was notably excluded from the shortlist of prospective resolution applicants based on IBC guidelines, with the EOI deadline closing on 17th April 2023. Adani Power subsequently submitted a delayed EOI on 29th July 2023, which was promptly rejected by the COC.However, in an unexpected turn of events in October 2023, Adani resurfaced in a new capacity as a joint venture partner of DAIT.While the Insolvency and Bankruptcy Code (IBC) does not explicitly prohibit the formation of consortia before bidding, DAIT alone may have failed to meet the minimum net worth requirement of Rs. 500 crore and the experience criterion of setting up at least 300 MW of Thermal Power.

On a standalone basis, DAIT demonstrates a net worth of Rs. 340 crore and experience limited to developing a 90 MW hydro plant.These developments have raised serious concerns regarding the legitimacy of the bids submitted by the DAIT-Adani Consortium, potentially violating the IBC guidelines.Further scrutiny is warranted given the COC’s rejection of Adani’s earlier EOI submission and subsequent acceptance of Adani as a consortium partner, despite their initial exclusion from the shortlist of prospective resolution applicants.Recently, the COC issued an LOI to the DAIT-Adani Consortium in December 2023 for Rs. 3,440 crore, notwithstanding the promoters’ offer of an 82% principal recovery amounting to Rs. 5,847 crore, inclusive of Rs. 2,327 crore already settled with banks.

With promoters having committed a substantial Rs. 1,259 crore as equity, the total financial support extended to Coastal Energen stands at a significant Rs. 7,097 crore compared to the consortium’s offer of Rs. 3,440 crore.Many mid-sized companies like Coastal Energen have borne the brunt of structural challenges in the Power Sector over the past decade. Addressing the needs of such companies, which have encountered issues beyond their control such as funding delays and policy uncertainties, is crucial for restoring investor confidence and aligning with the vision of a developed India.The matter is presently under legal consideration, awaiting further proceedings.

Shruti Suman

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